While the Reserve Bank (RBA) has left the official cash rate at a historic low, some economists believe interest rates must fall in the months ahead to restrain the value of the dollar and encourage recovery in non-mining sectors of the economy.

The growing headache for the RBA is the lower the rates, the greater the boom in the housing market - and bigger the pressure for regulators to intervene and ensure house price inflation does not burst like a bubble.

"By the end of October we'll see the housing market move back to historic highs because we are now on an escalating rate of recovery or capital gains," said RP Data's head of research Tim Lawless.

Sales in other capitals are lagging, but Melbourne is not far behind Sydney with 75 per cent of all homes 'on the block' now being cleared at auction or soon after.

But not everyone is pleased with this sales trend.

"With the low interest rate environment we're seeing some prices overshoot what we would consider to be fair value," said Paul Osbourne, a Melbourne buyer's agent.

Surging prices are being fuelled by investors flooding into the market, seeking greater gains than bank deposits and a refuge from the volatility of the share market.

If we do see the levels of growth continue that we're seeing in the market at the moment, or even accelerate, I think that's where we're starting to see a lot more danger.

Tim Lawless, RP Data's head of research

"The current housing market is very investor driven," Mr Lawless adds.

"Compare this to 2009 where the beginning of the cycle was very first home-buyer driven, in the current market first home-buyers represent only about 14 or 15 per cent of all mortgage demand from owner occupiers."

Mr Osbourne says self-managed superfunds have bought into the market in a big way in the past couple of months.

"We're also seeing a lot of foreign investment. As the dollar has come down we've seen a lot of money come in from China and Malaysia," he said.

This is making it very difficult for first home-buyers to compete.

"The good quality properties we have found have gone way over the guide price. So we've been looking at 5, 10, 15 per cent over what the top end of the guide price was," said Melbourne buyer Rob Seddon.

Rising house prices just what the RBA ordered

Housing is the largest investment asset in Australia, worth more than $5 trillion - dwarfing the stock market and fixed interest investments combined.

The RBA has announced its decision to leave rates on hold. But it is the issues not mentioned in the RBA statement that would be playing on the minds of board members the most, writes Alan Kohler.

Banking analyst Martin North says he believes Australia is already in a bubble.

"But it's a long-term bubble, not a short-term blip. You have to go right back to 2000 to really see the start of it," he said.

"My own view is that it's more sinister than a bubble because it's essentially a long-term systemic problem in the housing sector."

Mr Osbourne is also concerned.

"It is possible in the next six months we could see continual acceleration in the market place. I think if that does happen it won't be a good thing and that would end in a correction of some sort," he said.

RBA assistant governor Malcolm Edey recently said Australia should not be rushing to use the "bubble" terminology every time the rate of increase in house prices is higher than average, suggesting this was "unrealistically alarmist".

However the RBA has warned buyers not to expect the great gains in property prices seen previously - and it has warned banks to maintain strict lending standards or risk stricter regulations.

One of Australia's leading property analysts agrees there is a need for caution.

"If we do see the levels of growth continue that we're seeing in the market at the moment, or even accelerate, I think that's where we're starting to see a lot more danger.

"That we'll start to see leverage of household debt levels starting to rise and that will be quite alarming particularly for the Reserve Bank who's key financial objective is financial stability."

Difficult decisions for buyers

Financial comparison website Rate City has warned almost three-quarters of loans on its database last month offered borrowers a "loan-to-value ratio" of 95 per cent.

Asked what percentage of what they hoped to pay for a house would be borrowed, first home-buyers Chris and Tegan Horsley-Wyatt of Melbourne said "about 90 per cent will be borrowed".

The couple conceded they were worried about what might happen if interest rates begin to rise again.

The difficult decision for buyers, however, is when to venture into the market - with some analysts warning as interest rates inevitably rise, inflated property values will fall.

Mr Osbourne believes the market is moving into a lower growth environment.

"We've reached a critical threshold where you can't bring down the cash rate much further than where it is, and that will mean the prices paid in the market are going to be mature soon because of leverage levels in property pricing."

But not everyone agrees.

Kim Jones, a real estate agent in Sydney's eastern suburbs, says her company has just recorded its highest sales figures in 20 years by selling properties that would have struggled to sell in recent years.

"I don't believe the property market's going to burst. Not at all," she said.

"There is not enough property for the demand for people here in Sydney. And it's proven. We've got expats returning home. There is not enough property. So there's no burst of the bubble."